It was found that from 2009 onwards, some countries in the EMU like Spain, Portugal and other countries in the similar zone, were not able to refinance the debts incurred by the government. This crisis in some of the countries in the EMU had a spill-over effect and had generated an economic scarcity in most of the contemporary economies in the world. The essay in this context desires to throw light on how the crises in some of the economies in the EMU were responsible for the massive and deadly financial crisis in the financial markets of the whole European Union (Ross, 1979). Crisis in a Small Economies Triggered a Large Impact The economies in the contemporary world have become highly integrated in nature after the emergence of globalization and liberalization. The debt crisis that was initially faced by the public authorities in a few small economies in the Euro zone like Spain, Greece etc were responsible for the occurrence of the Sovereign Debt Crisis for the whole European Continent. The Property Bubble that occurred in Spain long back in 2007 was largely responsible for the occurrence for the recession in the European economy at the latter stage. It was found that after a long term sustainable growth, the Spanish economy had become highly unproductive in nature. The entrepreneurs started to invest more in the real estate sector. However, it was found that the prices of the properties constantly increased in the economy because real estate trading was used for speculative purposes in the Spanish economy. Ultimately, this caused a fall in the disposable income of the individuals who had to purchase houses at very high prices. The number of the failed projects in the economy started to increase. All the other economic indicators like the government debt, exchange rates, velocity of money circulation, derivative trading etc became worse in the economy at this point of time. As the countries used to follow the regime of fixed policies, the recession in one particular economy had largely triggered the same in other economies in the Euro zone. Greece was one of the poorest nations that had remained in the Euro Area. The government of the country took large amount of loans from the ECB for mitigating the requirements if the expansionary fiscal policies. However it was a matter of concern that the government of the country could not pay back the loans to the ECB. This was the reason for the huge fiscal deficit in the country. Fiscal deficit in the nation contagiously affected the supply of money in the economy. Thus during 2005 and 2009, some countries which were indeed small economies like Spain, Italy, Greece, Portugal etc. had to face severe financial crisis for reasons like property bubble, high fiscal debt or lack of productivity. Since all the nations in the Euro zone were integrated together in terms of the monetary policies taken for them, the crisis in some of the economies soon triggered the same in other economies in the European Continent and generated the severe Sovereign Debt Crisis in the country (Klann, 2007). Impact in the financial Market The financial market in the Euro zone was distressed after the occurrence of the Sovereign Debt Crisis. The severity of the recession caused in the economy has not been completely recovered from even at this juncture of time. Derivatives Market During the Sovereign Debt Crisis, the European economy faced severe financial crisis. The number of failed out financial projects were excessive. The overall productivity of the economy had fallen to a
The European Sovereign Debt Crisis Introduction The crisis that has been persisting in the European economy since the year 2009 had been substantially caused due to the Sovereign Debt Crisis. Sovereign Debt is the debt incurred by the government of a nation…
In order to increase productivity and competition in the European Union, a single currency was to be inculcated in the project of European Single Market. In addition, this would offer a monetary policy with credible inflation targeting for those countries that had been marred by the challenges associated with high inflation rates.
t bonds loses value. Banks typically seek to earn income on funds that they are required to keep as capital reserves on loans through low risk investments such as U.S. Treasury Bonds and other sovereign debt instruments. In Europe, it is expected that the major banks may have excessive exposure to Greek, Spanish, Italian, Portuguese, and other bonds from countries who face an increasing risk of defaulting on their debt.
13 Print. 13 13 The European Sovereign Debt Crisis during 2010-2011 Background of the Financial Crisis The ‘Sovereign Debt Crisis’ is a serious havoc in the securities’ global markets, which make it difficult for universal “European Monetary Union” associates, to fund their budgets (Viana 2).
Defaulting loan creditors increased in number across the continent of Europe and this led most banks’ grappling with what their next move would be. The financial institutions of many European countries collapsed; there was increased government debt. This began in the early 2008 with the banking system of Iceland collapsing.
The sovereign Crisis began because of the dysfunction of the monetary union of the states within the Eurozone in addition to the politicizing of the economic control in Europe. The Impact of the European Sovereign Debt Crisis includes the reduction of the bond yield in the United Kingdom.
However, Wallison (2012, p. 71) expressed the view that “in a true sovereign debt crisis, a country cannot meet its debt obligations, largely because it does not have enough of the currency in which its debt is denominated.” The European sovereign debt crisis began in 2008 with the banking crisis in Ireland with the contagion of the crisis spreading out to Greece, Ireland and Portugal in 2009 (Investopedia 2012).
From $36 trillion in 2000, the income from the fixed income securities rose to around $70 trillion in 2007. The funds offered lucrative returns which were even higher than the US treasury bonds in the global financial markets. Due to the high turnover of the fixed income securities in the global financial markets, the lenders overlooked the government regulation in order to tap the exorbitantly high returns from the investments and the borrowers flowed in excessively to avail such loans that did not demand adherence of strict credit parameters.
The euro’s value is deteriorating on a daily basis and the costs involved in protecting commercial bonds are on the increase. The values of capital goods have also been on the decline around the globe. There has been an increase in the investors’ fear concerning the market trends around Europe.
he Greece deficit was the first explicit sign that the Euro-zone was facing and had been facing severe problems in their financial structure and regulations, and these problems would go on to affect all the nations in the European nations.
The European Sovereign debt crisis
e governments of the few countries, notably Greece, Ireland and Portugal to address the financial debt crisis dating back to the year 2000 eventually became the major cause of the European sovereign debt crisis (Beirne and Fratzscher, 77). However, the major question that
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